Category Archives: Tyler Cowen is my Favorite Blogger

The null hypothesis for policy

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Scott Alexander writes,

the same argument that disproves the importance of photolithography disproves the importance of anything else.

His post gives a number of examples where progress follows a straight line. This is sometimes used as an argument that no individual policy (or invention, as in the case of photolithography) matters. Alexander wonders whether we are deceiving ourselves into believing the null hypothesis for policy.

I think that in the case of inventions it can be difficult to discern an effect at the point in time when the invention occurs. The process of developing complementary inventions, adapting to the new technology, and achieving widespread adoption takes time. See the work of economic historian Paul David. As a result, even in a world of discrete innovations, the overall path of progress is smooth.

In the case of policy, I think that one must also allow for time lags. For example, changes in labor market incentives may not have large effects in the short run, but over time the culture can be affected.

But in general, I think that if one fails to see any historical break point in an outcome following the adoption of a policy, that justifies a presumption that the policy did not better. I would suggest more careful analysis if that is possible. A clever researcher may be able to find a “natural experiment” that has more power against the null hypothesis. For example, Tyler Cowen posted about a study that found that a carbon tax had little effect on carbon dioxide emissions by comparing across regions. In principle, that study provides more persuasive evidence that the null hypothesis holds for the carbon tax.

Financial innovation is a warning sign

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Raghuram Rajan says,

I think you have to be a little careful. Every time you stop something, it’ll show up somewhere else if there’s a need for it. And is it better that it be in an entity that you regulate and you monitor reasonably closely? Or in an entity that you don’t regulate?

To the extent the entity you don’t regulate can absorb those losses, that’s not a bad thing. But to the extent that it cannot, and it all comes back into the system via these interconnected markets, you’re no better off. In fact, you’re worse off because you’re blindsided by the risks migrating to places you don’t look at.

That is from a conversation with Tyler Cowen.

In what I call the chess game of financial regulation, every regulatory move leads to a counter-move by the financial sector. Many regulatory ideas, including the idea that Rajan wisely scorns of not allowing banks to hold risky assets (requiring (narrow banking), are unwise if you look ahead one move.

I think that one way that you can tell you have made a bad move in the regulatory chess game is when you observe extensive financial innovation. It seems to me that a lot of innovation reflects attempts to take advantage of opportunities created by regulatory mistakes. Risks that you thought you were controlling are in fact changing shape or migrating.

The correct response is not to outlaw innovation. That just leads to another counter-move. The correct response when you see extensive financial innovation is to go back and understand how your regulations encourage that innovation and come up with ways to attenuate those incentives.

Academia: what is the scandal?

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1. Tyler Cowen writes,

these bribes only mattered because college itself has become too easy, with a few exceptions. If the bribes allowed for the admission of unqualified students, then those students would find it difficult to finish their degrees. Yet most top schools tolerate rampant grade inflation and gently shepherd their students toward graduation. That’s because they realize that today’s students (and their parents) are future donors (and potential complainers on social media). It is easier for professors and administrators not to rock the boat. What does that say about standards at these august institutions of higher learning?

The fundamental scandal is that elite colleges are a positional good for parents. The whole process is built around that. Colleges go all-out to recruit applicants in order to issue large numbers of rejections and thereby show that they are selective. As Tyler points out, when it comes to deciding who gets to graduate, these same colleges are hardly selective at all.

Imagine a different world, in which colleges abolish their admissions departments. Let anyone apply. If demand exceeds the available slots, then use a lottery. Grade rigorously, so that unqualified students flunk out. Parents who think too highly of their children will end up wasting tuition money. That seems like a more just world to me.

2. Daniel Klein on the ideological groupthink of academia.

There are many important points, including the tendency that once you have a solid majority with one viewpoint, they tend to lose touch with and demonize other viewpoints.

Pointer from Bryan Caplan, who seems to think it doesn’t matter, because nobody listens to those silly professors, anyway. I think Bryan is wrong on that. Some day, he may find himself living under an authoritarian regime because enough people do listen to these leftist professors. He may even find himself not protected by his own bubble.

In my view (2) is the real scandal. What I resented most when I saw the “admissions cheating” scandal was that these parents actually wanted so badly to get their kids into these schools. I think that the worst mistake that I made as a parent was sending my youngest daughter to one of the more prestigious colleges. If I were given a do-over, I would bribe that admissions office to issue a rejection.

Heritability estimates and eugenics

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L.J. Zigarell writes,

Analyses of responses indicated nontrivial support for most of the eugenic policies asked about, such as at least 40% support for policies encouraging lower levels of reproduction among poor people, unintelligent people, and people who have committed serious crimes. Support for the eugenic policies often associated with feelings about the target group and with the perceived heritability of the distinguishing trait of the target group. To the extent that this latter association reflects a causal effect of perceived heritability, increased genetic attributions among the public might produce increased public support for eugenic policies and increase the probability that such policies are employed.

Pointer from Tyler Cowen, who remarks, “Sad, but not surprising.”

To me, what is sad is that Zigarell strongly implies that suppressing the truth about heritability would lead to better policy outcomes. I may be reading more into those sentences that I should, but I want to argue against suppressing scientific findings about heritability.

The thing is, everyone has an intuition that there is heritability. Humans always have had that intuition, and we always will. Progressive have that intuition just as much as anyone else.

Suppressing the truth about heritability is not a good idea. Some people’s intuition over-estimates heritability, and for them the scientific findings about heritability might actually reduce those over-estimates.

Moreover, suppose that people who favor eugenic policies think that you are lying to them to try to change their minds. That will just make them more difficult to persuade. Instead, if they believe that you are trying to tell the truth, then they will listen to the case against eugenic policies.

A conservative case for countervailing power?

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Ross Douthat writes,

The earlier conservative self-understanding, in which the right was defending nongovernmental institutions against the power of the state, tacitly depended on the assumption that many if not most nongovernmental institutions would be friendly to conservative values. But as civil society has decayed over recent decades, its remaining power centers have also become increasingly left-wing.

. . .Yet conservatives can still win the White House and the Congress, which means that the one power center they can hope to control is the one they are notionally organized to limit — the administrative state.

Pointer from Tyler Cowen. To me, Douthat seems to be saying that since conservatives have been driven out of universities, mainstream media, and entertainment, they need to get hold of government to counterbalance this. I disagree with the proposed solution.

It reminds me of the early Progressive notion of “countervailing power.” The idea was that the emergence of large corporations starting in the late 19th century made market capitalism unfair to ordinary individuals. Government could serve as a countervailing power to offset the new corporate power.

I have two main reasons to be skeptical of the idea of conservatives using government as a countervailing power with respect to leftist cultural institutions. Instead, I think you have to strike directly at the cultural institutions.

1. If the cultural institutions are strongly left, then conservatives are not going to succeed in capturing government.

2. I think that the most effective countervailing power would consist of alternatives. Alternative media have been helpful in limiting the damage of mainstream media. I think that alternative educational approaches are the best hope for limiting the damage caused by public education and elite colleges.

Our goal should be to nourish primary education and higher learning that is not steeped in leftist ideology. The first thing to do is stop making gifts to existing colleges and universities. Instead of donating to that new grandiose fundraising campaign at your alma mater, put that money into some innovative higher education initiative.

Also, resist increases in funding for public education. Without more funding, the public school systems will be so burdened by pension obligations that they will have to scrimp on classroom education, and parents will turn to other means. That will encourage parents to turn to home schooling, private supplemental education, and independent learning for their children. As they make more choices for themselves, most parents will prioritize knowledge over ideology for their own chilren.

Martin Gurri watch

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Who said this?

Most politicians do not have excellent social media skills, but many will try to get noticed and have an impact (or at least hire staff members who will). As more politicians up their game on social media, more of these attempts will hit home. Ocasio-Cortez will have competition. The influence and reach of political celebrities will grow stronger, and the parties will become weaker yet.

This may be a more important trend than what is sometimes called political polarization. But what does this new, more intense celebrity culture mean for actual outcomes? The more power and influence that individual communicators wield over public opinion, the harder it will be for a sitting president to get things done. (The best option, see above, will be to make your case and engage your adversaries on social media.) The harder it will be for an aspirant party to put forward a coherent, predictable and actionable political program.

Actually, it was Tyler Cowen, but it echoes The Revolt of the Public.

But Tyler reaches this important, sobering conclusion:

Finally, the issues that are easier to express on social media will become the more important ones. Technocratic dreams will fade, and fiery rhetoric and identity politics will rule the day.

Tyler Cowen and Jordan Peterson

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Peterson says,

Many of you are probably familiar with Jonathan Haidt and Greg Lukianoff’s book, The Coddling of the American Mind. One of the points that they make, which shouldn’t have been up to them to make, was that if you set out to design a conceptual system to make weak and timid people who can’t operate in the world, you couldn’t do a better job than to create what constitutes the safe-space culture that currently permeates university campuses.

But I think he is on a much better track than Haidt and Lukianoff. For he says,

generally speaking, if you want to improve something, rather than criticize and change what already exists, it’s easier, especially now, it’s easier just to build a parallel system and see if you can put something in that’s a competitor.

And there is this:

I would say if you want to become a good educator, which perhaps might mean that you were following in my footsteps, for better or worse, is like, well, you have to learn to read, and you have to learn to think critically, and you have to learn to write, and then you have to learn to speak. You have to get good at all those things. And they’re all worth getting good at. They’re unbelievably powerful skills.

At best, I only accomplished three out of four. When speaking, I can be OK in Q&A format, but otherwise I am insufficiently animated. It is hard for me to stay awake during someone’s monologue, especially my own.

I strongly recommend the entire interview. I came away from the transcript convinced that Peterson has accumulated a great deal of wisdom. You can criticize him on any given point, just as you can criticize a championship baseball manager for taking out a pitcher and having the next guy give up a home run. Even the best managers make mistakes sometimes, but that does not make you better qualified to be the manager.

Speaking as an economist. . .

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Suresh Haidu, Dani Rodrik, and Gabriel Zucman write,

Neoliberalism — or market fundamentalism, market fetishism, etc. — is a perversion of mainstream economics, rather than an application thereof. And contemporary economics research is rife with new ideas for creating a more inclusive society. But it is up to us economists to convince their audience about the merits of these claims.

Pointer from Tyler Cowen. The authors are launching a project called “Econoimsts for Inclusive Prosperity.”

1. The use of neoliberalism as a boo-word puts me off right away. I see it as a sign that this will be an exercise in government fundamentalism,, government fetishism, etc. When they are uncharitable to those of us who say “Markets fail. Use markets,” it becomes really hard for me to be charitable to them.

2. Anat Admati has an essay in which she advocates higher capital requirements for banks and opposes tax policy that encourages debt finance rather than equity finance. It is a reasonable case. But I recommend my essay on the book that she co-authored, in which I suggest that the households who ultimately supply the funds for banks might prefer less equity and more deposit-like liabilities than what the book proposes. That essay is a Kling Klassic on capital structure.

3. Atif Mian has an essay that suggests that the extravagant wealth of some people leads to an excess supply in the capital market. Less-wealthy people are lured by low interest rates and weak credit screening into borrowing too much, making the financial system unstable. His solution is to have government confiscate more from the wealthy and redistribute it to the less-wealthy. I think that there is only a low probability that he has correctly diagnosed a problem. Even if he has, I imagine that one can come up with much better solutions.

4. Those are the two essays about which I can be the most charitable.

5. My main point is that I am becoming quite allergic to phrases like “economists say” or “economics says.” I know that I used to employ such phrases, but I have done so only sparingly, and from now on I plan to avoid them completely. Don’t argue from authority. Just state your proposition and defend it. Along these lines, I have had a strict personal policy for many years of not signing petitions of the form “economists who favor X” or “economists opposed to Y.” I dislike the implied tone of “I have credentials, you must listen to me.” I would sign a petition in favor of refraining from ever using the phrase “Speaking as an economist. . .”

On hiatus

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Until February 19. I am away from my computer, and I keep messing up HTML.

Also, there is nothing to write about. Covington? Northam? If we have the luxury of turning these stories into headlines, then we are either doing very well as a country or else we are desparate for distractions from whatever real problems we have.

A few days ago Tyler Cowen recommended a book called Whiteshift, which claims that the cultural disruption we are experiencing is due to whites feeling threatened demographically. I probably should examine the book. Off hand, though, I think that Martin Gurri has a better explanation, because I don’t think Whiteshift can explain the Arab Spring or Greece or Spain. Gurri’s story is that elites are getting knocked off their perch in the age of the Internet.

In the U.S., I see a progressive elite that pounds the table insisting that it stands against oppression. And we have a conservative elite that pounds the table insisting that it stands against barbarism.

The 2016 election exposed the conservative elite as a slim minority.

The progressive elite is larger, but it is still just a minority. I think it is in a precarious position. Puritanism always provokes a backlash. And just as the Republican base decided that the conservative elite is not worth supporting, might non-white ethnics at some point decide that the progressive elite is not worth supporting? One can envision a scenario in which the progressive elite finds itself as beached as the conservative elite finds itself today.